Mortgage lender in administration
Analysis
The collapse of a small mortgage lender, Victoria Mortgages, may seem neither here nor there in the scale of things.
The City watchdog, the Financial Services Authority, has tried to play down the significance of Victoria’s passing.
And in one sense, the FSA’s relaxed demeanour is reasonable.
Victoria was simply a vehicle for collecting mortgages from British housebuyers with less than perfect credit histories and then turning them into bonds for consumption by investors.
Last year it sold around £500m of mortgages. Even so, the only people who should be seriously inconvenienced or damaged by its demise are the 381 customers with current mortgage offers from Victoria that are yet to receive their money.
But what did for Victoria is a trend of wider significance – investors’ loss of appetite for this species of debt and the refusal of an unnamed bank to underwrite Victoria’s loan book pending any re-awakening of investors’ hunger.
Victoria is a microcosm of the wider credit squeeze, viz the reluctance of banks to lend to other financial institutions and the evaporation of demand for certain kinds of bonds and tradeable debt.
Here’s why Victoria’s demise matters: it operates in markets that directly affect you and me, in contrast to the special investment vehicles and hedge funds which have been the main British victims of the turmoil so far.
The Bank of England and the Financial Services Authority will be hoping that what has happened to Victoria is not the start of a trend. To state the obvious, they would be less relaxed if a larger household name mortgage bank were to have difficulty raising finance from banks or the money markets.
Article
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Regulators are seeking ways to protect affected customers |
A British mortgage lender which offers loans to people with poor credit histories has gone into administration.
Victoria Mortgages said its funding had been "removed", becoming one of the first UK victims of the credit squeeze caused by worries over sub-prime loans.
Borrowers whose mortgage applications have been approved, but have yet to receive funds, are set to be worst hit.
But rival lender GMAC-RFC is to step in to give finance to some borrowers affected by Victoria's collapse.
'Funding removed'
Victoria is understood to have stopped making new loans several weeks ago.
But the firm's collapse means the loan applications of a small number of borrowers - thought to number between 300 and 400 - are in abeyance because it can no longer provide funds.
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Simon Read, Victoria Mortgages |
It is fair to say our funding line has been removed 
"We have gone into administration," said Simon Read, the firm's head of business development.
"It is fair to say our funding line has been removed."
Victoria was established in 2005 and lends money to people with patchy credit records, so-called sub-prime loans which have been at the heart of the current US housing crisis.
According to Victoria's website, it requires "no explanation" of an individual's "adverse" credit position before considering them for funding.
The vast majority of Victoria's customers will be unaffected by its financial problems because it has sold its existing mortgage liabilities onto banks and other financial institutions.
It is understood that Victoria's problems were caused not by any deterioration in the financial position of its borrowers but by its bank deciding to withdraw funding because of the negative credit conditions.
Offer of help
GMAC-RFC said it had contacted the Financial Services Authority (FSA) about stepping into the breach to help Victoria's customers due to complete home purchases in the next few days.
It said it was "happy to help with a number of borrowers who have purchase transactions proceeding, that otherwise would have been left unable to complete on their new homes".
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| VICTORIA: KEY FACTS 50 staff 5,500 customers 3% of UK sub-prime sales Main owner is US firm Venturion Capital |
"We are working with the FSA and the administrators to ensure these completions will take place over the next few days as planned," it added.
Victoria sold £500m worth of mortgages last year, accounting for about 3% of the overall sub-prime market.
Worried customers have been advised to contact Victoria or the administrators KPMG.
The UK mortgage market has yet to suffer any substantial fallout from the US sub-prime crisis, which was triggered by a wave of mortgage defaults as interest rates rose.
But analysts have expressed concerns about the fate of thousands of borrowers as their fixed-rate mortgages expire in the near future.
There is also the prospect of lenders raising mortgage rates to compensate for the increased pressure on their profits due to the general credit squeeze.
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